And releasing a sequel gets you hype and press coverage - potentially expanding your customer base - in a way that releasing updates won’t.
There are some exceptions (No Man’s Sky?) but they are very few and far between.
It’s not about shareholders necessarily. It’s also about sustainability and people paying bills - they live in a capitalist society and can’t choose not to participate at the end of the day. You can’t ask a dozen or more developers to keep working on a game for free for a decade or more. They have to eat too.
The only other option is keep playing the exact same game with little to no changes. Which you can! The original is still available. But if you want it to improve and change over time or receive substantial DLC’s, somebody has to get paid at some point.
Free major updates make your existing customers happy but don't pay salaries. This is why so many games have moved to some kind of ongoing revenue model with Battle Passes, cosmetics, item marketplaces, etc.
Or just eliminate copyright entirely and focus on economic models that are based on funding creation. You raise money to build the thing, and once it's built, it's there for all.
So, you never fall in the trap of Paradox Games and the eternal launch of DLCs for Stellaris/Victoria/Hearths Of Iron/etc?
I'm not sure this is true, see Factorio as an example. They released Space Age as a "DLC" but for full price and with clear messaging that it's version 2.0 of the game.